Tag Archives: vat-group

Tax points and VAT groups – The Prudential Assurance Company Ltd CoA case

By   11 April 2024
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Latest from the courts

In the The Prudential Assurance Company Limited (Pru) Court of Appeal (CoA) case the issues were the “difficult” questions in respect of the relationship between the VAT grouping rules and the time of supply (tax point) legislation. Is VAT is applicable on a continuous supply of services where these services were supplied while the companies were VAT grouped, but invoices were issued after the supplier left the VAT group?

Background

Pru was at the relevant time carrying on with-profits life and insurance business. Silverfleet Capital Limited (Silverfleet) provided Pru with investment management services. Under an agreement dated 30 August 2002, the consideration which Silverfleet received for its services comprised a management fee calculated by reference to the amount of investments made during the period in which services were provided and performance fees, payable in the event that the performance of certain funds exceeded a set benchmark rate of return.

When Silverfleet was rendering its investment management services, Pru was the representative member of a VAT group of which Silverfleet was also a member. However, in 2007 a management buy-out was effected, as a result of which Silverfleet ceased to be a member of Pru’s VAT group. It also ceased to provide management services to Pru.

During 2014 and 2015, the hurdle rate set under the 2002 agreement was passed. Silverfleet accordingly invoiced Prudential at various dates between 2015 and 2016 for fees totalling £9,330,805.92 (“the Performance Fees”) plus VAT at 20%.

The Issues

The CoA considered whether the Performance Fees are subject to VAT.

The First-tier Tribunal (FTT) decided the point in favour of Pru. However, HMRC succeeded in an appeal to the Upper Tribunal (UT). In a decision that decision, the UT concluded that VAT was chargeable on the Performance Fees.

In its decision, the FTT queried whether regulation 90 of the VAT Regulations went so far as to direct that Silverfleet’s services had not been provided within a VAT group and had been “supplied in the course or furtherance of a business that in the VAT group world was not being carried on”. Further, the FTT was “unable to see what feature distinguishes [Prudential’s] case from that of the taxpayer in [B J Rice & Associates v Customs and Excise Commissioners]”.

In contrast, the UT considered that, pursuant to regulation 90 of the VAT Regulations, Silverfleet’s services were to be treated as having been supplied when invoiced and, hence, at a time when Silverfleet and Prudential were no longer members of the same VAT group. That being so, section 43 of VATA 1994 was not, in the UT’s view, in point. The UT also considered that the FTT had erred in regarding itself as bound by B J Rice & Associates v Customs and Excise Commissioners [1996] STC 581 (“B J Rice”) to allow the appeal. Unlike Mr Rice, the UT said in its decision, Silverfleet “was not entirely outside the scope of VAT when the Services were rendered, but rather it was subject to a specific set of assumptions and disregards”.

Pru contended that Silverfleet should not be considered to have made the supply in the course or furtherance of any business carried on by it. The business will instead be assumed to have been carried on by Pru. This was important because if VAT was applicable to the services Pru would not be in a position to recover it (in full at least) due to partial exemption which represented a large VAT cost.

Unsurprisingly, HMRC considered that output tax was due because at the tax point, Silverfleet as no longer part of the VAT group. 

Legislation

The VAT Act 1994, section 43 lays down the rules in respect of VAT groups, and The VAT Regulations 1995, regulation 90 makes provision with respect to the time at which continuous supplies of services are to be treated as supplied for VAT purposes.

Section 43 explains that any supply by one member of a VAT group to another is to be “disregarded” and that “any business carried on by a member of the group shall be treated as carried on by the representative member”. Does this mean that no VAT is chargeable on an intra-group supply regardless of whether the supplier has left the group by the time consideration for the supply is the subject of a VAT invoice and paid? Or is section 43 inapplicable in respect of continuous supplies insofar as the consideration is invoiced and received only after the supplier is no longer a member of the VAT group because regulation 90 provides for the services to be treated as supplied at the time of the invoice or payment?

Decision

The appeal was dismissed and HMTC’s assessment was upheld. It was not possible to disregard the supply as intra-group and the tax point rules for the continuous supply of services meant that it was a taxable supply. The decision was not unanimous, with the decision by the judges being a 2:1 majority.

Commentary

This was a close decision and highlights the necessity of considering the interaction between VAT groups and tax points and the implications of timings. The case makes interesting reading in full (well, for VAT people anyway!) for the technical discussions and the disagreement between the judges.

VAT grouping and divisional registration guidance updated

By   9 February 2024
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HMRC has update VAT Notice 700/2: Group and divisional registration.

VAT group registration

VAT grouping is a facilitation measure by which two or more eligible persons can be treated as a single taxable person for VAT purposes. Eligible persons are bodies corporate, individuals, partnerships and Scottish partnerships, provided that certain conditions are satisfied. Bodies corporate includes companies of all types and limited liability partnerships.

The pros and cons of VAT grouping here. 

Divisional registration

This is a facility that allows a corporate body which carries on its business through a number of self-accounting units to register each of those units or divisions separately for VAT. Guidance on divisional registration is in section 9.

Updates

Recent updates include:

  • Information on what happens if HMRC refuses your application and how to request a paper VAT1 form 
  • The list of notifications a business may receive while waiting for a VAT grouping registration number, has been updated at section 2.17. A new section about late payment submission penalties has been added at section 5.11.

 

VAT: Change of registration details – update

By   3 November 2022
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If any of the following details of a business’ registration changes, HMRC must be notified on form VAT484:

  • name, or trading name
  • address of the business
  • accountant or agent who deals with a business’ VAT
  • members of a partnership, or the name or home address of any of the partners (a form VAT 2 is also required)

The relevant guidance has been updated to reflect the new requirement that such changes must be notified within 30 days of the change taking place. Failure to do so will result in penalties.

Other changes

  • Change of bank details

HMRC must be notified at least 14 days in advance if a business changes its bank details.

  • Taking over someone else’s VAT responsibilities

A person must tell HMRC within 21 days if they take over the VAT responsibilities of someone who has died or is ill and unable to manage their own affairs. Use form VAT484 and post it to the address on the form.

  • VAT group changes

If you join or leave a VAT group, you must first cancel your VAT registration. You will need to use the group’s VAT number once you’ve joined it. The VAT group should tell HMRC about the new member.

  • Change of business structure

You need to tell HMRC if the structure of the business changes, eg; incorporation or a Transfer Of a Going Concern.

VAT: New tool to check HMRC’s performance and service levels

By   21 July 2022
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Via this service dashboard you can check current processing times and service levels for post and online requests.

The guidance sets current performance and service levels, processing dates and the date HMRC aims to return to normal service levels where there is a delay.

It currently advises:

VAT registration

Normal Service – HMRC aim to reply within 30 working days from the date the request was sent.

VAT deregistration

Normal service – HMRC aim to reply within 30 working days from the date the request was sent.

VAT – group registration application

Delayed Service

HMRC aim to return to normal service of 30 working days by the end of August 2022.

This date is an estimate and may change. HMRC say that it is sorry for the delay.

HMRC is currently processing requests received on 17 March 2022.

If you sent your request after 24 June 2022, please do not contact HMRC as it has not been processed yet.

VAT – option to tax

Delayed Service

HMRC aim to return to normal service of 30 working days by the end of August 2022.

This date is an estimate and may change. Again, HMRC say that it is sorry for the delay.

HMRC is currently processing requests received on 9 December 2021.

If you sent your request after 9 December 2021, please do not contact HMRC as it has not been processed yet.

Further, you can Check when you can expect a reply from HMRC

VAT Grouping – As you were

By   21 July 2021
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HMRC published a call for evidence last year in respect of the VAT group registration provisions, specifically:

  • the establishment provisions
  • compulsory VAT grouping
  • grouping eligibility criteria for businesses currently not in legislation, including limited partnerships

The call for evidence was used to gather information and views on the current UK rules, and on provisions that have been adopted by other countries.

Background

VAT grouping is a facilitation measure by which two or more eligible persons can be treated as a single taxable person for VAT purposes. Eligible persons are bodies corporate, individuals, partnerships and Scottish partnerships, provided that certain conditions are satisfied. Bodies corporate includes all types of companies and limited liability partnerships. From 1 November 2019, grouping is additionally available for all entities, including; partnerships, sole traders and Trusts in certain cases. We consider the pros and cons of VAT grouping here.

Outcome

HMRC state that it was clear from the responses how valuable UK VAT grouping is to businesses and it is appreciated that businesses require certainty following Brexit and the impact of Covid 19. The call for evidence prompted a substantial number of responses that were generally in favour of maintaining current practices. It also set out evidence on why changes to the provisions on VAT grouping would impact business growth and international competitiveness.

Consequently, HMRC has decided that there will be no changes to the VAT grouping rules.

*  a sigh of relief * 

With everything else going on in the VAT world, a little continuity is welcome.

VAT: Where do I belong?

By   7 May 2020
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The place of belonging

The concept of “belonging” is very important in VAT as it determines where a supply takes place and thus the rate applicable and the country in which is due. (The so-called “Place Of Supply, or POS). It is necessary, for most supplies, to establish where both the supplier, and the recipient belongs. Because this is a complex area of VAT it is not difficult to be overpaying tax in one country, not paying tax where it is properly due, or missing the tax issue completely.

A relevant business person `belongs’ in the relevant country. A `relevant country’ means:

  • the country in which the person has a business establishment, or some other fixed establishment (if it has none in any other country);
  • if the person has a business establishment, or some other fixed establishment or establishments, in more than one country, the country of the relevant establishment (ie; the establishment most directly concerned with the supply); and
  • otherwise, the country of the person’s usual place of residence (in the case of a body corporate, where it is legally constituted)

A person who is not a relevant business person `belongs’ in the country of his usual place of residence. The `belonging’ definition applies equally to a supplier and the recipient of a supply, where relevant.

Business establishment is not defined in the legislation but is taken by HMRC to mean the principal place of business. It is usually the head office, headquarters or ‘seat’ from which the business is run. There can only be one such place and it may take the form of an office, showroom or factory.

Fixed establishment is also not defined in the legislation but is taken by HMRC to mean an establishment (other than the business establishment) which has both the technical and human resources necessary for providing and receiving services on a permanent basis. A business may therefore have several fixed establishments, including a branch of the business or an agency. A temporary presence of human and technical resources does not create a fixed establishment in the UK.

Usual place of residence. A body corporate has its usual place of residence where it is legally constituted. The usual place of residence of an individual is not defined in the legislation. HMRC interpret the phrase according to the ordinary usage of the words, ie; normally the country where the individual has set up home with his/her family and is in full-time employment. An individual is not resident in a country if only visiting as a tourist.

More than one establishment. Where the supplier/recipient has establishments in more than one country, the supplies made from/received at each establishment must be considered separately. For each supply of services, the establishment which is actually providing/receiving the services is normally the one most directly connected with the supply but all facts should be considered including

  • for suppliers, from which establishment the services are actually provided
  • for recipients; at which establishment the services are actually consumed, effectively used or enjoyed
  • which establishment appears on the contracts, correspondence and invoices
  • where directors or others who entered into the contract are permanently based, and
  • at which establishment decisions are taken and controls are exercised over the performance of the contract

However, where an establishment is actually providing/receiving the supply of services, it is normally that establishment which is most directly connected with the supply, even if the contractual position is different.

VAT groups

A VAT group is treated as a single entity. This also applies when applying the ‘place of belonging’. As a result, a group has establishments wherever any member of the group has establishments.

This is an area which often leads to uncertainty, and therefore VAT issues.  It is also an area where VAT planning may; save time, resources and avoid unexpected VAT costs, either in the UK or another country.

For more on our International Services







New VAT Group rules

By   6 November 2019
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Changes to VAT Group rules – an increased opportunity

From 1 November 2019 the rules for VAT grouping have changed.

What is a VAT group?

A VAT group allows two or more entities to account for VAT under a single registration number with one of the corporate bodies in the group acting as the representative member.

The group is registered in the name of that representative member, who is responsible, on behalf of all of the other members of the group, for completing VAT returns and paying and reclaiming VAT.

All supplies of goods and services made by any member of the group to a third party outside the group are treated as having been made by the representative member. Similarly, any supply of goods or services made by a third party outside the group to any member of the group is treated as having been made to the representative member.

Supplies of goods or services between group members are not subject to VAT and a single VAT return will be completed each period for the entire group, as opposed to separate businesses submitting individual returns.

The changes

Prior to 1 November, only bodies corporate were able to form a VAT group (mainly companies and LLPs). From the beginning of this month, VAT grouping is additionally available for all entities, including; partnerships, sole traders and trusts in certain cases.

Eligibility

Via existing legislation, grouping is permitted if the control tests are passed. Bodies corporate can form a VAT group if:

  • each is established or has a fixed establishment in the UK
  • they are under common control

(There are additional tests for certain ‘specified bodies’ set out in Notice 700/2 para 3.2)

‘Control’ has a specific meaning based on the definition of holding company and subsidiary in section 1159 of and Schedule 6 to the Companies Act 2006.

New changes to eligibility

Non-corporate entities such as individuals and partnerships can now join a VAT group if they meet all of the following conditions:

  • they are established, or have a fixed establishment in the UK
  • they can demonstrate that they control all of its body corporate subsidiaries in the group. The test will apply assuming the non-corporate entity would pass the test if it was a corporate body, eg; usually meaning 51% or more of share capital in the relevant company/companies
  • they can demonstrate that they are entitled to VAT register independently of any other business (the distinction here is that a body corporate may be included in a VAT group if it is not trading, nor intends to trade)

The current eligibility to group is set out at VAT Act 1994, Section 43A and has been updated with a new section 43AZA which includes the new changes.

VAT Group pros and cons

So, would it be beneficial to VAT group entities? I set out here the pros and cons for businesses.

  Pros

  • only one VAT return per quarter – less administration
  • no VAT on supplies between VAT group members.
  • no need to invoice etc or recognise supplies on VAT returns
  • likely to improve partial exemption position if exempt supplies are made between group companies.
  • likely to improve input tax recovery if taxable supplies are made to partly exempt group companies
  • may provide useful planning opportunities/convenience at a later date.

Cons

  • all members of the group are jointly and severally liable for any VAT due
  • only one partial exemption de-minimis limit for group
  • obtaining all relevant data to complete one return may take time thus increasing the potential for missing filing deadlines
  • a new VAT number is issued
  • assessments can be issued to the representative member relating to earlier periods when it was not the representative member and even when it was not a member of the group at that time
  • the limit for voluntary disclosures of errors on past returns applies to the group as a whole (rather than each company having its own limit)
  • payments on account limits apply to the group as a whole.  This applies to a business whose VAT liability is more than £2million pa.  Please see HMRC Reference: Notice 700/60 details here
  • may detrimentally affect partial exemption position if a partly exempt company makes taxable supplies to a fully taxable group company

Planning

If you think that there is a potential advantage for you, or your clients’ business, in VAT grouping, please contact us to discuss the VAT position.







VAT – Input tax on buy out costs and VAT grouping

By   23 November 2016
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Latest from the courts

May input tax incurred by a VAT group be attributed to the activities of a single member of that group?

In the First Tier Tribunal (FTT) case of Heating and Plumbing Supplies Ltd, the issue was whether input tax incurred on professional costs of a management buyout were recoverable.

Background

A company was formed with the intention of buying the shares of a trading company.  The purchasing company and the trading company were then VAT grouped and the professional costs were invoiced to, and paid for, by the VAT group (the tax point being created after the date that the VAT group was formed).  HMRC disallowed the claim for the relevant input tax on the grounds that the purchasing company itself did not make any taxable supplies (it did not engage in an economic activity).  While this may have been correct, the appellant contended that in these circumstances, the VAT group must be considered as a single taxable person and that the activities of the group as a whole that should be considered. The input tax was an overhead of the group, and because the group itself only made taxable supplies (via the representative member) the input tax was recoverable in full by the representative member

Decision

Following recent case law in Skandia America at the Court of Justice, the judge here decided in favour of the appellant. It was ruled that HMRC may not look at the purchasing company in isolation but rather, the group must be considered as a whole.  The FTT stated that “when a VAT group is formed the identities of the individual members of the group disappear…” meaning that a VAT group is a single taxable entity, the VAT status of the individual members being irrelevant in this situation. This confirms our long held view on the status of VAT groups and provides welcome clarification on the matter.

Relevance

This case highlights that HMRC’s policy of looking at the activities of a group member individually is inappropriate.  This is so even if the grouping structure provides input tax recovery which would not have been available had the companies been VAT registered independently.

Typically in these circumstances, HMRC will either challenge the decision, or amend its guidance to reflect this ruling.  We await news on how HMRC will react.

Action

If a business has either been denied input tax on buy out or similar acquisition costs, or made a decision not to recover this VAT, it would be prudent to lodge a claim with HMRC (plus interest).

We are able to assist with such a claim.

www.marcusward.co







Should I form a VAT Group? Pros and Cons

By   19 November 2015
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VAT Groups

This is a very concise summary of matters that should be considered when deciding to form or disband a VAT group. rowing boats

VAT grouping is a facilitation measure by which two or more bodies corporate can be treated as a single taxable person (a single VAT registration) for VAT purposes. “Bodies Corporate” includes; companies of all types and limited liability partnerships.

It is important to recognise the difference between a corporate group and a VAT group – these are two different things and it should not be assumed that a corporate group is automatically a VAT group.

There are detailed rules on who can VAT group, which is an article in itself for another day, but it is worth remembering that it is possible to VAT group where no taxable supplies are made outside the group.

Pros

  • Only one VAT return per quarter – less administration.
  • The representative member accounts for any tax due on supplies made by the group to third parties outside the group. This is particularly helpful if your accounting is centralised
  • No VAT on supplies between VAT group members. No need to invoice etc, or recognise supplies on VAT return.
  • Usually improves the partial exemption position if exempt supplies are made between group companies.
  • May improve input tax recovery if taxable supplies are made to a partly exempt group company.
  • If assets are hived up or down into a group company before a company sale to a non-grouped third party, the VAT consequences of the intra-group movement may be ignored.
  • May provide useful planning opportunities/convenience at a later date.
  • Sales invoices issued, or purchase invoices received, in the wrong company name would not require time-consuming amendment.
  • There may be cashflow benefits in respect of intra-group charges.
  • Reduced chance of penalties on intra-group charges.

 Cons

  • All members of the group are jointly and severally liable for any VAT due.
  • Former VAT group members are also liable for any VAT debts due during the period of VAT group membership.
  • Only one partial exemption de-minimis limit for group – which decreases the ability to fully recover input tax.
  • Obtaining all relevant data to complete one return may take time thus possibly missing filing deadlines.
  • A new VAT number is issued.
  • The representative member needs all of the necessary information to submit a VAT return for the group by the due date.
  • Via anti-avoidance provisions, assessments can be raised on the representative member relating to earlier periods when it was not the representative member and even when it was not a member of the group at that time.
  • The limit for voluntary disclosures of errors on past returns applies to the group as a whole (rather than each company having its own limit).
  • The payments on account (POA) limits apply to the group as a whole. This applies to a business whose VAT liability is more than £2 million pa. This adversely affects a business’s cashflow.
  • The cash accounting limit of £1,350,000 applies to the group as a whole (rather than each company having its own limit).
  • Transfers of Going Concerns (TOGCs) acquired by a partly exempt VAT group may result in an irrecoverable VAT charge as a result of a deemed self-supply.
  • An option to tax made by a VAT group member is binding on all present and future members of the VAT group. This is so even after a company has left the VAT group.

We strongly recommend that professional advice is taken when a business is either considering forming a VAT group, or when thought is being given to disbanding one. Making the wrong decision could be very expensive indeed.  Specific matters that dictate VAT advice are when:

  • property is involved
  • inter-company charges are made
  • TOGCs are involved
  • costs in respect of restructuring are incurred (a current hot potato in the courts)
  • there is an international aspect to a group
  • a reverse charge applies
  • a company has been involved in the penalty regime
  • companies become insolvent
  • a VAT group is subject to POA
  • a company, or the VAT group, makes exempt supplies.